Question

On January 1, 2019 the DAYUMSON Company budget committee has reached agreement on the following data for the 6 months ending June 30,2019.

Sales units	First quarter 5,000; second quarter 6,000; third quarter 7,000
Ending raw materials inventory	40% of the next quarter’s production requirements
Ending finished goods inventory	30% of the next quarter’s expected sales units
Third-quarter 2019 production	7,500 units

The ending raw materials and finished goods inventories at December 31, 2018, follow the same percentage relationships to production and sales that occur in 2019. Two pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $ 5 per pound.

Instructions:

1. Prepare a production budget by quarters for the 6-month period ended June 30, 2019
2. Prepare a direct materials budget by quarters for the 6-month period ended June 30, 2019

Answer 1

a.

Production Budget
	First Quarter	Second Quarter	Six Months
Sales units	5000	6000	11000
Add : Desired Ending Inventory	1800	2100	2100
Total Goods Required	6800	8100	13100
Less : Beginning Inventory	1500	1800	1500
Production Required	5300	6300	11600

Ending Inventory
1st Quarter = 6000 x 30% = 1800 and 2nd Quarter = 7000 x 30% = 2100
Beginning Inventory, 1st Inventory = 5000 x 30% = 1500 and 6000 x 30% = 1800

b.

Direct Material Budget
	First Quarter	Second Quarter	Six Months
Production Required	5300	6300	11600
Raw Material Per unit	2	2	2
Raw Material for Production	10600	12600	23200
Add : Desired Ending Inventory	5040	6000	6000
Total Material Required	15640	18600	29200
Less : Beginning Inventory	4240	5040	6000
Material to be purchased	11400	13560	23200
Cost per Pound	$              5.00	$               5.00
Raw material purchase cost	$          57,000	$          67,800	$         124,800

Ending Inventory
1st Quarter = 12600 x 40% = 5040 and 2nd Quarter = 7500 x 2 x 40% = 6000
Beginning Inventory, 1st Inventory = 10600 x 40% = 4240 and 12600 x 40% = 5040

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